Question

Why do a company’s operators/workers, managers, and executives have different informational needs than shareholders and external suppliers of capital?

Answer 1

Answer-

A company’s operators, managers, and executives need information for their operational control and improvement activities, as well as on the performance of their individual processes, products, services, and customers. This information is important to direct managers’ attention to areas where improvement is needed, to provide feedback on activities, and to monitor and evaluate the performance of operators, departments, divisions, and business units and their managers. This information should be created and produced based on the internal need for operational and strategic information. Shareholders and external suppliers of capital are not involved in managing the business or establishing and validating the company’s strategy. Therefore, they do not need the timely and disaggregate information generated for internal managerial uses. External capital suppliers will receive less timely (typically quarterly for shareholders, monthly for creditors) and more aggregate information. Also the form and accounting procedures used to prepare these external reports are constrained by regulation—such as by the country’s standard setting authorities and governmental regulatory agencies. Another constraint on information supplied externally is the risk of competitors seeing and acting upon a company’s disclosed information. Therefore, while internal information should be highly relevant about the success of the company’s strategy, such information disclosed externally could harm the company.